Liberty Hill selects individual securities on the basis of its assessment of the prospects for long-term appreciation. Elements such as dividend income, balance sheet strength, free cash flow, reputation of management, and volatility of the security are important, but secondary, considerations. Investments are selected for appreciation potential and because they offer a discount from the appraised business value. The Liberty Hill investment approach is a slow and deliberate process. Liberty Hill will only purchase each individual security at a price that offers a significant discount, and thus a margin of safety, from the appraised value of the business as defined by Liberty Hill. Therefore, new clients should expect to see a period of many weeks, if not months, for their account to become fully invested after inception. Investors should understand that the early phase of Liberty Hill's management is normally characterized by substantial cash balances that will be reduced only as rapidly as individual security prices remain available within the price guidelines set by Liberty Hill in each respective case.

Accounts may also, from time to time, hold significant levels of cash reserves when Liberty Hill is of the opinion that a down-market cycle is probable and that even undervalued securities will suffer in the general downdraft, and/or when Liberty Hill cannot locate securities offering acceptable discounts from Liberty Hill's appraised business value.

By choosing stocks that Liberty Hill believes to be at a discount to appraised value, Liberty Hill seeks to create a margin of safety. Over time, as other investors recognize the company's value, this margin is expected to decrease and the stock to appreciate. Securities are generally sold when they reach their fair value as determined by a fundamental appraisal of company-specific information. The time needed for value to be recognized in the stock market may be lengthy - 2 to 4 years or longer. For this reason, Liberty Hill generally purchases stocks for the long term. By buying securities at a discount to their appraised value, Liberty Hill believes risk may be decreased and potential reward may be increased for the investor who is patient enough to wait for the process to work.

In addition to identification of undervalued stocks, Liberty Hill uses its value analysis to identify significantly overvalued companies. In bear markets, portfolios managed by Liberty Hill are often augmented by short interest positions. When such opportunities present themselves, Liberty Hill will sell a stock short, and the portfolio will profit from the stock's loss in value. Liberty Hill considers short selling a valuable, but secondary, tool. Due to the scarcity of short positions that meet Liberty Hill's criteria for value investing, it is typical for a portfolio to hold no more than 10% short interest.